In periods of great uncertainty the ability to take directional bets on markets is valuable. When those bets can be made in a highly commoditised and price-competitive environment, as is the case with US equity options, it is priceless. finds David Wigan.
Trading of US single name and index options hit record levels
in 2011, surpassing 4bn contracts on an estimated 200,000
instruments for the first time in November. Year-to-date
average daily options volume stands at 18.5m contracts, about
3m contracts per day more than 2010, and the past 12 months
will be the ninth consecutive year to set an annual trading
global economic uncertainty, investors have seen options as a
toxic-free way of expressing directional views, mitigating risk
and accessing leverage. Meanwhile intense competition among
exchanges and advances in technology have spurred participation
among hedge funds, retail investors and institutions. Higher
volumes have encouraged new entrants, with Miami International
Holdings in April saying it plans to open a 10th exchange in
the second quarter of next year.
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